Firm v. United States

• Decision Date: 18 January 2012
• Docket Number: No. 09-891C,09-891C
• Parties: CHAPMAN LAW FIRM, LPA, Plaintiff, v. UNITED STATES, Defendant.
• Court: Court of Federal Claims

CHAPMAN LAW FIRM, LPA, Plaintiff,

v.UNITED STATES, Defendant.

No. 09-891C

United States Claims Court

Filed: January 18, 2012

Motion for Partial Summary Judgment; Contract Interpretation; Ambiguity; Contra Proferentem

James S. DelSordo, Argus Legal, LLC, Manassas, VA, for the plaintiff.

Lauren S. Moore, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for the defendant. With her were Jeanne E. Davidson, Director, Commercial Litigation Branch, and Tony West, Assistant Attorney General. Of counsel, Richard A. Marchese, Attorney, United States Department of Housing and Urban Development, Philadelphia, PA.

OPINION

HORN, J.

BACKGROUND AND FINDINGS OF FACT

Plaintiff, Chapman Law Firm, LPA (Chapman), filed a complaint in the United States Court of Federal Claims. In its complaint, Chapman alleges that the United States Department of Housing and Urban Development (HUD) wrongfully denied claims for reimbursement it had submitted pursuant to Contract No. C-PHI-00958 (the Contract). According to plaintiff, the costs were incurred as a result of pre-performance, stop work orders issued by the Contracting Officer, constructive and actual changes made by the government to the Contract, theft of trade secrets, and the government's bad faith failure to exercise Option Year 1 of the Contract. The plaintiff also requested attorneys' fees, interest, and any other and further relief deemed appropriate by the court.

The government ultimately submitted an amended Answer in which it filed counterclaims for violations of the False Claims Act, 31 U.S.C.A. § 3729 (2009), and asserted various affirmative defenses, including breach of contract, unclean hands, offset, failure to mitigate damages, and Special Plea in Fraud, 28 U.S.C. § 2514 (2006). Defendant seeks relief in an appropriate amount, a penalty for each violation of the False Claims Act, interest, and further appropriate relief.

The defendant filed a motion for partial summary judgment pursuant to Rule 56 of the Rules of the United States Court of Federal Claims (RCFC) on an issue of contract interpretation.¹ Defendant asserts that Chapman failed to employ Ohio-licensed inspectors while conducting diagnostic inspections for wood destroying organisms (WDO) in homes owned by HUD, in violation of certain Ohio state laws incorporated into the Contract. Defendant relies on four Contract provisions and four Ohio state laws in its motion for partial summary judgment: Contract Section 5.1.8, "Compliance with Legislative, Regulatory and Policy Requirements," Contract Section 5.3.3.2, "Inspections," Contract Section 5.3.9, "Termites and Wood Destroying Organisms," Contract Section 5.3.9.1, "Clearance," Ohio Administrative Code §§ 901:5-11-01 (2007) and 901:5-11-13 (2007), and Ohio Revised Code §§ 921.06 (2007) and 921.24 (2007).²

The case originated when HUD issued Request for Proposal (RFP) Number R-OPC-22505. The RFP requested bids for the management and marketing of HUD single family homes. In particular, the RFP requested:

Management & Marketing services to successfully monitor mortgagee compliance with the Department's property conveyance requirements, to successfully manage single family properties owned by, or in the custody of, the Department of Housing and Urban Development (HUD), to successfully market those single family properties which are owned by HUD, and to successfully oversee the sales closing activity, including proper accounting for HUD's sales proceeds.

HUD awarded Chapman the Contract for the management and marketing of single family homes in Ohio and Michigan.³ Section 5.3.3.2 of the Contract, "Inspections," directed Chapman to "routinely inspect and take all actions necessary to preserve, protect and maintain each [HUD] property." As part of its inspection duties, Chapman was required to conduct up to two inspections on each home for termites and other wood destroying organisms, with subsequent optional inspections to be determined by general trade practices in the geographic region. Contract Section 5.3.9, "Termites and Wood Destroying Organisms," governed the initial, required inspection:

Prior to listing, the Contractor shall obtain a termite and Wood Destroying Organisms (WDO) inspection on all properties located in FHA [Federal Housing Administration] designated Termite Probability Zones (TPZ), except vacant lots, properties identified for demolition or properties sold under an Asset Control Area Agreement. TPZ areas are listed by State at www.hud.gov/offices/hsg/sfh/ref/sfh1-23.cfm. The Contractor shall pay the cost of the WDO inspection and any subsequent inspections required in 5.3.9.1.

Contract Section 5.3.9.1, "Clearance," provided:

For properties, which require a WDO inspection in 5.3.9, the Contractor shall provide a current termite/WDO clearance letter at closing if requested by the purchaser. In some areas this will require a re-inspection no earlier than thirty (30) days prior to closing. Additionally, the Contractor may at its discretion and expense, provide WDO inspections and clearances in areas not required under 5.3.9 if the seller in that market generally provides such inspections and clearances.

Pursuant to Contract Section 5.1.8, "Compliance with Legislative, Regulatory and Policy Requirements," all of the Contract provisions, including Section 5.3.9 and Section 5.3.9.1, were to be carried out pursuant to applicable federal, state, and local laws:

The Contractor shall comply with all Federal, state or local laws or regulations pertaining to the activities described in this PWS [Performance Work Statement]. When local laws and regulations conflict with HUD requirements, the Contractor shall notify the GTR [Government Technical Representative] and the Contracting Officer.

Consequently, for the purposes of this opinion, Chapman's Contract incorporated applicable Ohio laws.

In its motion for partial summary judgment, defendant claims that plaintiff failed to comply with Section 5.1.8 of the Contract by using inspectors who were not licensed in Ohio to conduct inspections for wood destroying organisms in violation of Ohio law. The inspections were conducted in 2007 and 2008. The statutes for 2007 and 2008 for the above four Ohio laws are identical. Ohio Administrative Code § 901:5-11-01(N)(12) provided:

"Wood-destroying insect diagnostic inspection" means the examination of a structure at the request of any party involved in a contemplated real estate transaction to determine if wood destroying insects are present in the structure, if there is evidence they either are or have been present in the structure, or the presence of any visible damage to the structure caused by wood-destroying insects and the generation of a written report of the findings of the examination.

Ohio Admin. Code § 901:5-11-01(N)(12) (emphasis added).

Although not cited to the court by the defendant, in the definitions section of the Ohio Revised Code, "commercial applicator" is defined as, "an individual who is licensed under section 921.06 of the Revised Code to apply pesticides or to conduct authorized diagnostic inspections." Ohio Rev. Code § 921.01(F). An authorized diagnostic inspection is defined as, "a diagnostic inspection conducted by a commercial applicator in the pesticide-use category in which the commercial applicator is licensed under this chapter." Ohio Rev. Code § 921.01(K). Other relevant Ohio state laws indicate that, "authorized" diagnostic inspections must be carried out by inspectors licensed in Ohio. Ohio Revised Code § 921.06 states that a person "[c]onduct[ing] authorized diagnostic inspections" is required to have a commercial applicator license.⁴ Ohio Rev. Code § 921.06(A)(1)(e). Ohio Administrative Code § 901:5-11-13 provides that "[c]ommercial applicators conducting wood-destroying insect diagnostic inspections [hereinafter inspections] . . . Shall conduct all inspections in accordance with the practices set forth in the Ohio wood-destroying insect diagnostic inspection training program." Ohio Admin. Code § 901:5-11-13. Ohio Revised Code § 921.24 provides that "No person shall do any of the following . . . (B) Act as a commercial applicator without being licensed to do so. . . (I) Make false or fraudulent records, invoices, or reports . . . (O) Aid or abet a licensee or another person in violating this chapter or rules adopted thereunder; (P) Make a false or misleading statement in an inspection concerning any infestation of pests or the use of pesticides . . . (U) Engage in fraudulent business practices. . . ." Ohio Rev. Code § 921.24.

Defendant argues that the Contract directed the inspections under Section 5.3.9 to be conducted in accordance with the requirements of Ohio law and that under Ohio Administrative Code § 901:5-11-01(N)(12), HUD was a "party involved in a contemplated real estate transaction," "i.e., the eventual sale of the property," and, therefore, plaintiff was required to use licensed commercial inspectors to conduct the WDO inspections. Plaintiff responds that it:

conducted more than one termite inspection: (1) when each properly [sic] was initially received by CLF [Chapman Law Firm] into its inventory from HUD; (2) during CLF's bi-monthly health and safety inspections; and (3) when the property was analyzed by an appraiser. Because none of these inspections was [sic] requested by 'any party involved in a contemplated real estate transaction' they were not WDO inspections as described under Ohio law. Therefore, CLF did not have to employ licensed inspectors to perform these inspections.

Plaintiff also asserts that "because these inspections were not required by Ohio law the inspections conducted in accordance with § 5.3.9 of the Contract they [sic] were not listed on CLF's electronic management system ('EMS') which described CLF's work on each property for HUD's information. . . . Information on these inspections was not provided on CLF's marketing website available to...